IMPACT OF FOREIGN DIRECT INVESTMENT ON REAL ESTATE DEVELOPMENT IN NIGERIA

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CHAPTER ONE

INTRODUCTION

1.1       BACKGROUND TO THE STUDY

In a published report on Business Day by Uroko (2015), he explained that, Lagos, Abuja and Port Harcourt, Nigeria’ commercial, administrative and petroleum industry capitals respectively, are the top real estate investment destinations, and account for as high as 65 percent of all activities in this asset class, a report by the National Bureau of Statistics has revealed. The report indicated that Lagos has the greatest amount of real estate activities at 37 percent, followed by Abuja with 22 percent and Port Harcourt (Rivers State) with 6 percent, all covering 65 percent of real estate activities in the country. The trio, often regarded as Nigeria’s traditional cities, have seen increased tempo of activity in real estate development and much of the investments that have gone into real estate in the country in the last decade were concentrated in these cities. Nigeria’s has a burgeoning real estate sector, which by the GDP rebasing exercise in the country in April 2014, was discovered to be the fastest growing and sixth largest sector in the Nigerian economy, explaining the rising level of investment in the sector by both local and foreign investors.

Foreign direct investment (FDI) is defined as an investment in which a firm acquires a substantial controlling interest in a foreign firm (above 10 percent share) or sets up a subsidiary in a foreign country (Chen, 2000). The International Monetary Fund adds the investor’s purpose is to have an effective voice in the management of the enterprise. FDI is not only a financial transaction between two foreign enterprises, in which one company invests in the capital of the other one. This transaction gives to the investor lasting management of the company and a direct control over assets. FDI investors take in whole or in part the control of the management of the firm and its strategy.

1.2  STATEMENT OF PROBLEM

In Dunning (1988), the industrial organization hypothesis explains that companies are willing to spend their money in FDI only if advantages arising from intangible assets are large enough to overcome disadvantages of investing in a foreign country. The level of FDI attracted by the country is not encouraging compared with the resource base and potential need (Aseidu, 2003). Therefore, this study focused on the factors that affect Foreign Direct Investment in Real Estate.

1.3       AIM AND OBJECTIVES

The aim of the study assessed foreign direct investment and its impact on real estate development. In order to achieve the above aim, the following are the objectives of this study:

• To identify the factors that affects the foreign direct investment in real estate development.
• To determine the effects of foreign direct investment on real estate development.
• To assess the relationship that exists between increased foreign direct investment (FDI) and increased activity in the real estate sector.

1.4       RESEARCH QUESTIONS

The following are the research questions generated:

1. What are the factors that affect the foreign direct investment in real estate development?
2. What are the effects of foreign direct investment on real estate development?
3. What relationship exists between increased foreign direct investment (FDI) and increased activity in the real estate sector?

1.5       HYPOTHESES OF THE STUDY

The following hypotheses were postulated for this study:

1. There is no relationship between the factors that affect the foreign direct investment and foreign investor attractiveness to real estate investment.
2. There is no relationship between increased FDI (Foreign Direct Investment) and increased activity in the real estate sector.

1.6    SCOPE OF THE STUDY

The scope of this study is based on the assessment of foreign direct investment and its impact on real estate development. This study will also focus mainly on building projects as real estate type. Lagos State is chosen for this study because of the concentration of building professionals, consultant, and the increase in building projects in the state.

The study which is conducted in Lagos state made use of building project participants including estate surveyors and valuers and construction consultants such as Project managers, Quantity Surveyors, Architects, Contractor and Engineers.

1.7    SIGNIFICANCE OF THE STUDY

This study is undertaken as means of contribution to real estate project development in the nation and to the direct users like the client organizations, construction consultants, government officials and the general public. This study is very useful to the stake holders in the real estate sector and it is also important to the private investors who are willing to venture into real estate investment in the country. The achievement of the objectives will also make it easier for the investors to make the right decisions when it comes to investing in real estate.

1.8    DEFINITION OF KEY TERMS

The following are the definitions of some key terms to this research context;

Foreign Direct Investment: Foreign Direct investment is defined as an investment that is made to acquire a lasting interest in the real estate properties, building or development  operating in an economy other than that of the investor, the investor’s purpose being to have an effective voice in the management of such real estate.

 Real Estate:  involves the purchase, ownership, management, rental, and/or sale of real estate for profit by foreign investors. Improvement of realty property as part of a real estate investment strategy is generally considered to be a sub-specialty of real estate investing called real estate development.

Development: is a multifaceted real estate investment, encompassing activities that range from the renovation and re-lease of existing buildings to the purchase of raw land and the sale of improved land or parcels to others. Developers, who are foreigners, are the coordinators of the activities, converting ideas on paper into real property.

Investment: is time, energy, or matter spent in the hope of future benefits actualized within a specified date or time frame. Investment here is for economics purpose.

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